STATE OF CALIFORNIA
FRANCHISE TAX BOARD
MEETING
THURSDAY, DECEMBER 4, 2008
FRANCHISE TAX BOARD
9646 BUTTERFIELD WAY
TOWN CENTER, GERALD GOLDBERG AUDITORIUM
SACRAMENTO, CALIFORNIA
1:30 P.M.
REPORTED BY: SANDRA VON HAENEL
CSR NUMBER 11407
1 APPEARANCES
2 FRANCHISE TAX BOARD:
3 Hon. John Chiang, Chair
Hon. Michael C. Genest
4 Hon. Judy Chu, Ph.D.
Deputy Controller Marcy Jo Mandel,
5
6 FRANCHISE TAX BOARD STAFF:
7 Colleen Berwick
Lisa Garrison
8 Patrick Kusiak
Brian Putler
9 Steve Sims
Karen Smith
10 Selvi Stanislaus
Geoffrey S. Way
11
12
13 PUBLIC SPEAKERS:
14 Melissa Anderson, California Budget Project
Catherine Apker, CSEA
15 Roland Boucher, United Californians for Tax Reform
Michelle Ferreira, Holme Roberts & Owen
16 Lenny Goldberg, California Tax Reform Association
Gina Rodriquez, Spidell Publishing
17 David Shaw, California Society of Enrolled Agents
John Woodford, California Society of CPAs
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1 SACRAMENTO, CALIFORNIA
2 THURSDAY, DECEMBER 4, 2008, 1:30 P.M.
3 ---oOo---
4 CHAIR MANDEL: This is the scheduled time for the
5 meeting of the Franchise Tax Board.
6 Will the secretary please call the roll.
7 MS. BERWICK: Member Chu?
8 MEMBER CHU: Here.
9 MS. BERWICK: Member Genest?
10 MEMBER GENEST: Here.
11 MS. BERWICK: Deputy Controller Mandel for
12 Chair Chiang?
13 CHAIR MANDEL: Here.
14 At least two members or their designated
15 representatives being present, there is a quorum, and the
16 Franchise Tax Board is now in session.
17 The public has a right to comment on each agenda item.
18 If there are any members of the public wishing to speak on
19 an item, please come forward when that item is called. You
20 will have three minutes to address the Board.
21 Our first item is approval of the minutes. We have
22 the minutes for the September 4th, 2008, Board meeting.
23 Are there any comments or changes from the members?
24 MEMBER CHU: I make a motion to approve the minutes.
25 MEMBER GENEST: Second.
3
1 CHAIR MANDEL: It has been seconded, and I will join.
2 There is no objection. The minutes are approved.
3 The second item is legislative matters, legislative
4 proposals for possible Board action, and Brian Putler is
5 going to be presenting that item.
6 MR. PUTLER: Good afternoon. I'm Brian Putler, the
7 department's legislative director. Today we have five staff
8 legislative proposals, and staff requests that the Board
9 approve the proposals. And for each approved proposal, the
10 staff will begin work and have them placed with authors and
11 bills, and then work toward enacting the proposals.
12 If the Board would like, I'd be happy to give a brief
13 oral summary for the five proposals, unless you would like
14 to proceed in another fashion.
15 CHAIR MANDEL: The summary, please.
16 MR. PUTLER: The first proposal, A, would make acts of
17 tax professionals to promote or aid and abet in the use of
18 abusive tax shelters be grounds for disciplinary action. It
19 would require the FTB to give notice to the Board of
20 Accountancy, the State Bar, or the IRS, instances where an
21 abusive tax shelter penalty is imposed against one of these
22 professionals, and it would also permit the FTB to disclose
23 the underlying taxpayer's tax returns to be used only in the
24 disciplinary action.
25 The second proposal, proposal B, is a cleanup to
4
1 AB 339 from the 2006 legislative year, and that bill was
2 known as the Uniform Limited Partnership Act of 2008.
3 There are three instances in that bill where limited
4 partnerships are treated differently than corporations, and
5 it's the recommendation of staff through this proposal to
6 change current law so limited partnerships, for purposes of
7 a revival, would be treated the same as a corporation when
8 they go to revive, so they would have to pay any outstanding
9 fees such as collection fees imposed by the department, they
10 would have to file any outstanding tax returns, and then, to
11 the extent that a request to expedite the revival, there
12 would be a fee imposed for that, for the administrative
13 expedition of the fee.
14 The third proposal, C, has to do with the homeowners
15 and renters assistance program, also called HRA, and present
16 law requires for some claimants who are claiming they
17 qualify for HRA benefits because they are disabled, in some
18 instances, the department's staff is required to make
19 medical determinations of whether a claimant is in fact
20 disabled, and this proposal would moot the department from
21 having to make those determinations to simply looking to
22 validate whether a disability determination had been made by
23 the Social Security Administration, the VA, or one of two
24 other state agencies.
25 The fourth proposal also having to do with HRA would,
5
1 for claimants -- right now we would eliminate a three-year
2 limit on tolling for persons who are medically
3 incapacitated, so the tolling period would last as long as
4 the medical incapacitation lasts. And the other change it
5 would make is, for claimants with a legal representative,
6 tolling would not apply to them any longer.
7 And then the final proposal would apply in situations
8 where a taxpayer grants a waiver of the statute of
9 limitations for the IRS to make an assessment of tax where
10 that assessment or, rather, that waiver, also applies
11 automatically to the California statute of limitations.
12 There can be instances where a taxpayer or the IRS
13 either destroy or misplace the underlying waiver form, and
14 it has been a longstanding practice of the department under
15 current law to look to other documentation that the IRS may
16 have to prove the waiver.
17 What this proposal would do is simply expressly state
18 in the Code that the FTB could rely on other records of the
19 IRS to establish the waiver.
20 CHAIR MANDEL: Okay. Thank you.
21 I don't have any sign-ups for this item. Are there
22 any members of the public wishing to address the Board on
23 the legislative proposals?
24 Yes. Could you come forward and state your name for
25 the record.
6
1 MS. APKER: Good afternoon. Catherine Apker with
2 California Society of Enrolled Agents.
3 Just a thought on proposal 1, I notice that it's only
4 licensing board. This does not prohibit or it looks like
5 this would not cover the CTEC registered preparers in
6 California, and there is between 40- and 42,000 of those.
7 And if something could be done to look at that,
8 because I know that the CTEC board is talking about it, but
9 because they are only the registering body, they're having
10 difficulty in how they might address this. So that might be
11 something that could be incorporated into this legislation.
12 CHAIR MANDEL: Brian, could you address the CTEC
13 issues?
14 MR. PUTLER: Yes, we're happy to look into that and
15 see if it's appropriate.
16 THE COURT: Okay. Any questions or comments?
17 Member Chu.
18 MEMBER CHU: Yes. I'd like to ask a question about
19 the first proposal.
20 Could you explain more about why the current existing
21 penalties against attorneys and accountants that promote
22 abusive tax shelters are not strong enough.
23 MR. PUTLER: Yes. What we find is the existing state
24 penalties are -- for instance, there are three different
25 penalties that this would apply for. There is what we call
7
1 a preparer penalty. The amounts involved range from $250 to
2 $5,000. And then the other two penalties are either from
3 the lesser of a thousand dollars or the amount of gain that
4 that preparer earns from the misdeed. And the belief of
5 staff is that these penalties are not high enough to change
6 the risk calculation in favor of the preparers no longer
7 advising their clients to enter into an abusive tax shelter.
8 And so it's been the belief of staff that actually
9 having the potential for disciplinary action on their
10 professional license would change the risk calculation.
11 MEMBER CHU: Do you know how many times the penalty is
12 applied?
13 MR. PUTLER: The actual instances of application of
14 the penalties is still relatively low, in large part due to
15 the fact that the penalties have not been in existence for
16 too long. But the preparer penalty, to date, has been
17 applied -- I think it's been applied 15 times, and the
18 promoter penalty has been applied three times.
19 But I think it's important to know that, for the
20 preparer penalty, the total assessed penalties amount to
21 nearly $4 million. So when they do apply, those can be
22 significant penalties.
23 MEMBER CHU: So if there is somebody who is very
24 blatant in their actions, there is not much that can be done
25 as currently exists, and that's the reason for the
8
1 legislation?
2 MR. PUTLER: Yes. When you compare the amount of the
3 penalties to the potential profit that can be made, that's
4 why we believe that the risk calculation needs to have the
5 extra help in the disciplinary action.
6 CHAIR MANDEL: Any other questions or comments?
7 Is there a motion on the legislative proposals?
8 MEMBER CHU: Unless somebody wants to take them one by
9 one.
10 CHAIR MANDEL: Only if you want to.
11 MEMBER CHU: Then I move to approve these legislative
12 proposals.
13 CHAIR MANDEL: And I'll second that. And that would
14 be without objection.
15 MR. PUTLER: Thank you very much.
16 CHAIR MANDEL: We're going to move to Item 4, the
17 administrative matters.
18 Lisa, if you could come up.
19 MS. GARRISON: Thank you. I'm Lisa Garrison with the
20 Financial Executive Services Division of the Franchise Tax
21 Board, and today I want to present to you three items under
22 number 4 in your binder. These are administrative matters.
23 The first item for your approval is Item 4a, and this
24 is approval of a budget change proposal that the department
25 prepared. It has been submitted to the Department of
9
1 Finance and also the Chief Information Officer as a pending
2 item, and we have been informed that, at least at the staff
3 level, that they do, in fact, agree with this proposal.
4 What it is is the first-year funding for our
5 Enterprise to Data Revenue Project. This is an integral
6 part of our Tax Systems Modernization Project with a
7 projected cost of over $200 million over the next five to
8 eight years. With that price tag, though, it brings in
9 potential revenue of $90 million to $500 million a year.
10 In the first year we have asked for $3.8 million in
11 augmentation. One of the ways we have looked at funding
12 this project is we are looking to make sure that each year
13 that we identify potential new revenue sources that we
14 think, by bringing this project in incrementally, bring in
15 enough new revenue to cover the cost of the project in a
16 particular year. So we have identified $4 million of new
17 revenues by bringing in components of this in the year to
18 fund the $3.8 million.
19 What this project does is it looks at improving our
20 processing of returns and, most importantly, our utilization
21 of tax data, which is something we have been asked to do by
22 both the Legislature and the Department of Finance, is to
23 optimize our use of the information, the data that we have
24 in house. And so that is one of the keys of this particular
25 project.
10
1 So I am here today to ask for your approval to move
2 forward with this BCP.
3 CHAIR MANDEL: Is there any member of the public who
4 wants to speak on the BCP? No?
5 Any questions, comments?
6 MEMBER CHU: Well, we had a rather extensive
7 discussion about this last time.
8 CHAIR MANDEL: Right.
9 MEMBER CHU: Correct, yeah.
10 So, with that, then, I'll make a motion to approve the
11 budget change proposal request.
12 CHAIR MANDEL: I'll second that.
13 And you will be abstaining; is that correct?
14 MEMBER GENEST: Okay.
15 CHAIR MANDEL: So that one passes on the 2-0, with
16 Finance not participating.
17 Our next item, Lisa, is contracts over a million
18 dollars?
19 MS. GARRISON: Yes. Under Item 4b in the binder,
20 you'll see contracts for approval over $1 million. The
21 first is notification of our intent to go out for a
22 multiyear agreement to provide unarmed, uniformed security
23 guard services for our central office campus here at FTB.
24 This is based under the competitive bid process on a master
25 services agreement between CHP and ourselves. So, under
11
1 their contract, we would be looking at a 16-month contract
2 to the tune of $3.8 million.
3 Basically, what we have is an 85-acre complex with
4 6,000 people from five different departments here at FTB,
5 and one of the primary roles of these security officers is
6 the protection of our data. We have certain agreements with
7 the IRS, and many of those agreements require us to have
8 certain levels of security.
9 In addition, with our staff of 6,000, these guards
10 process more than a thousand visitors every month who come
11 into secured areas.
12 In any one year, we have major banking operations, as
13 you are well aware, of $3 billion days and fifty-six hundred
14 million dollar days or more. With having security guards
15 here to protect the checks that come in to us is a very
16 important part of it.
17 So we are asking your permission to move forward with
18 this contract.
19 CHAIR MANDEL: Any member of the public wish to
20 address this contract?
21 Any questions, comments?
22 MEMBER CHU: Well, these are unarmed security guards,
23 so if there really is a disturbance or a very, very upset
24 taxpayer, then what happens?
25 MS. GARRISON: They basically monitor and follow the
12
1 individual. Given the setup and security in our facility
2 with regard to locked doors and stuff, there are very few
3 entrances where the general public, first of all, could come
4 in. So if we have a taxpayer who comes in, the first line
5 is they will see our security guard with the badges
6 stationed, which you have seen. And if anyone becomes
7 overly aggressive or they cannot convince them to leave,
8 they will call the CHP, and the CHP is very close, and we
9 have a very good working relationship with them, and they
10 are available to take care of anything like that.
11 (Chair Chiang arrives.)
12 MS. GARRISON: Did you want to take action on the
13 individual contracts or move after all three?
14 CHAIR CHIANG: Let's move all three.
15 MS. GARRISON: Okay.
16 The next item is permission to move forward with a
17 potential contract for our Personal Income Tax Debt
18 Collections using an outside vendor. This is for
19 out-of-state collections. This would be an agreement to
20 cover one year with a renewal option of two years. Our
21 previous agreement was also three years. We expect that the
22 cost on this would be roughly $1.2 million.
23 There are some interesting aspects of this contract we
24 are working on this year. In the past, it has been a flat
25 commission. Instead, what we are looking at this year is
13
1 using a contract method which provides a greater incentive for
2 the person who has the contract to put in more resources. So
3 there would be a sliding scale, and they can get a higher
4 commission based upon their success rate. We would provide
5 the same methodology as our in-state contracts that we are
6 doing that were brought into effect three months ago.
7 We still have in this contract, as we do with our
8 out-of-state contracts, consumer protection and outsource
9 projections of what we require the vendor to have in place.
10 They have to follow certain federal debt protection rules,
11 collection rules. They are cognizant about that.
12 There are certain rules with regard to any complaints.
13 One of the things we have brought in is that, if we get a
14 complaint from a taxpayer, we immediately withhold on the
15 account, we go to the vendor, and we ask them literally for
16 the phone tapes of any single actions with an individual.
17 So we have an immediate ability to look at the contacts
18 between the collectors and the taxpayer.
19 We also have the methodology where we score the
20 success of our contractors that customer service is one of
21 the elements that is scored.
22 The third --
23 MEMBER CHU: And what kind of oversight is there to
24 ensure that the debt collectors are doing their job properly
25 and that the consumers are protected?
14
1 MS. GARRISON: Well, the first line of oversight is
2 within the organization itself. The fact that the
3 organization understands that, if their individual employees
4 do not follow the rules, that they have the potential of not
5 receiving as many accounts from us.
6 As in the quarterly reviews of whoever has the debt
7 contracts, getting a poor customer service score can mean
8 that they get less accounts assigned to them in the next
9 month, so they get less accounts, the possibilities of
10 collecting more, so that for the management of our selection
11 companies, they have that incentive.
12 Secondly, if we receive a certain number of complaints
13 on an individual collector, then what we can do is we would
14 task the collection company to take that collector off our
15 account. We have the ability to do that. And then these
16 are even harsher in regard to if areas of abuse continue,
17 there are harsher penalties where the contract actually can
18 be withdrawn.
19 CHAIR CHIANG: Any other questions? No?
20 Next item, please.
21 MS. GARRISON: The next item for permission of the
22 Board is for contracts exceeding $1 million in the area of
23 our mainframe security services. This contract is in
24 negotiation, so I don't have an exact number for you. This
25 contract is a joint negotiation between the Department of
15
1 General Services, DGS, with Computer Associates for a
2 proprietary mainframe security system. It has been joined,
3 negotiated this time as it was three years ago.
4 CHAIR CHIANG: Any questions?
5 Okay. Is there a motion on all three items?
6 MEMBER CHU: I move to approve all three BCPs.
7 MEMBER GENEST: Second.
8 CHAIR CHIANG: Motion by Chu, second by Genest.
9 Without objection, motion passes.
10 MS. GARRISON: The next item I report to you is an
11 additional item to you. In some respects, it's probably a
12 little old news, but just with the way the budget fell this
13 year, this is the highlight from the department's 08/09
14 budget.
15 Basically, the highlight that I would point out to you
16 is that the department was given 251 additional positions,
17 both requested in BCPs and in Finance Letters, in order to
18 generate additional revenue for the state.
19 We had projected bringing in an additional $139
20 million of revenue of tax-gap efforts and compliance
21 activity. Also, the department did not take the
22 across-the-board 10 percent cut that other agencies had to
23 take, because we did come back and suggested we have
24 additional sources of revenue.
25 The only other item that I would suggest is of
16
1 interest in there is the one on the transition of the CCSAS
2 program to DCSS on 1/1/09, so their funds have been removed
3 from our budget.
4 And also there is a large general funds increase on
5 our revenues that is due to the acceleration of the LLC
6 payments. And we will continue to incorporate that into our
7 systems. We've received a small augmentation, but we will
8 be bringing in about 360 additional million dollars in the
9 budget year as a result of that.
10 CHAIR CHIANG: Thank you.
11 Questions or comments?
12 Let's go back to Item Number 3, please.
13 MR. KUSIAK: First item would be 2009 Rulemaking
14 Calendar for approval for submission to the OAL.
15 CHAIR CHIANG: Very good.
16 We have a few people signed up for Item Number 3.
17 MEMBER CHU: Before they speak, I would like to make a
18 statement.
19 CHAIR CHIANG: Sure.
20 MEMBER CHU: I have grave concerns about a particular
21 issue that is in here that is an item that is scheduled for
22 rulemaking, and that is the Limitation on Net Operating Loss
23 Carryforwards and Certain Built-In Losses Following
24 Ownership Change for Banks. And so I'd like to ask for a
25 separate motion on this issue because it's related to the
17
1 IRS Notice 2008-83, which was issued on September 30th,
2 2008.
3 The notice eased the restrictions on how losses from
4 loans or bad debts can be used after bank acquisitions or
5 mergers. And, essentially, the IRS overturned the
6 anti-abuse rule in IRC Section 382(h) which prevents healthy
7 banks that merge with banks that have significant built-in
8 losses in their assets, in particular, banks where there are
9 lots of bad mortgage loans, from using those loans to
10 shelter their income and eliminate their tax liability.
11 And what's even worse about what happened is that it
12 was done without any kind of statutory authority. It was
13 just done by their own notice. And, of course, we in
14 California usually conform to federal interpretations of
15 federal law.
16 As such, then, California will be greatly affected by
17 that. And unless there is a state regulation that
18 California adopts specifically to not conform, we generally
19 do conform. And it will have very, very negative
20 consequences to us. In fact, the Treasury Department really
21 should not, by fiat, require California to contribute
22 billions to its bank bailout scheme. As you know, we have
23 our own problems, very, very difficult problems right now
24 fiscally in the state.
25 If the Treasury Department wanted to repeal a
18
1 22-year-old law that was enacted by Congress, as this one
2 was, that was explicitly for the purpose of preventing
3 tax-motivated mergers and acquisitions by banks, then they
4 should have done it in the light of day, through the bailout
5 legislation that was considered by Congress.
6 Now, the preliminary estimates of the consequences of
7 this action result in $140 billion of federal tax savings
8 for banks that merge with troubled banks or other financial
9 institutions with significant bad debts. And I've asked the
10 FTB, and they estimate that California losses will be as
11 much as $300 million in 2009 and up to $2 billion over the
12 next several years, depending on the level of merger
13 activity.
14 Now, Senator Charles Schumer estimates that Wells
15 Fargo, which acquired Wachovia three days after this IRS
16 notice was issued, will save $19.4 billion in taxes under
17 this notice, more than the $15.1 billion that it paid in
18 stock for the deal.
19 In addition, the policy concern about this IRS notice
20 is that it allows healthy banks to use billions in equity
21 investments pumped into their balance sheet by the Federal
22 Reserve to engage in tax-motivated mergers and acquisitions,
23 rather than to take that money and do what we need, which is
24 to extend loans to individuals and businesses and spur
25 economic activity in our country.
19
1 It's particularly offensive to me that this IRS notice
2 opened the doors for banks to misuse taxpayer dollars for
3 the purpose of investing in tax-avoidance schemes. After
4 all, a bank has to be healthy enough to post a profit before
5 it can benefit from a tax shelter. And it's very offensive
6 to me that the Treasury Department and IRS would exploit a
7 legitimate crisis that we have in this country for ramming
8 through a questionable and perhaps unlawful change in
9 policy.
10 Now, there has been reaction to this. There have been
11 two bills introduced in Congress to overturn this IRS
12 notice. At the state level, there was a proposal to
13 decouple state law from federal law. It was in the state
14 legislation that was considered by the state Legislature
15 last week. But, as you all know, that did fail because it
16 was included with other items such as the tripling of the
17 LSM and suspension of the PIT indexing.
18 So, although there may be a legislative fix to the
19 problem, I believe that the Board should act on this matter
20 immediately, especially in light of this state's fiscal
21 crisis. The FTB does have the authority to issue
22 regulations to make the IRS notice not applicable for
23 California purposes.
24 So I want to make a motion for staff to bring back a
25 regulatory proposal at the next meeting of the Franchise Tax
20
1 Board to this effect.
2 MEMBER GENEST: I second that.
3 CHAIR CHIANG: There is a motion and a second.
4 Questions and comments?
5 Geoff, can you opine on the legality of the FTB
6 issuing a regulation in this arena?
7 MR. WAY: Sure. We have stated before that, in this
8 arena, California law is identical to federal law under
9 Section 382. So, under those provisions, the federal
10 administrative guidance, such as regulations or notices,
11 generally apply for California purposes.
12 Our preference would be that this be a, quote,
13 "legislative" remedy. We believe that's the cleanest
14 action. It's within the purview of the Legislature to do
15 this. However, the Revenue and Tax Code does provide that,
16 where our laws are the same, the federal regulations and, we
17 believe, that federal guidance would also apply to the
18 extent our law is different or that we adopt regulations to
19 the contrary. So I think the Legislature has given us
20 specific authority to regulate in this area.
21 I think we would recommend that we do a dual track
22 here. There is a bill that's been introduced in this
23 session of the Legislature to perform the same action. It
24 would take us probably about nine to twelve months to do
25 this. And we can certainly hold an interested parties
21
1 meeting and bring it back to the Board for your
2 consideration, and encourage the Legislature to continue on
3 their path, and then address the issue. I think we could
4 possibly do both.
5 CHAIR CHIANG: So there's a motion, second.
6 Are there any other questions or comments?
7 MEMBER GENEST: Well, what I'd just like to say is I
8 know the bills we're talking about are supported by the
9 Administration, and I think it's absolutely essential that
10 we not lose this amount of money from the general fund
11 that's already deep in the negative territory. So we expect
12 the legislation to be enacted, but I think it's reasonable
13 and prudent to pursue a regulatory fix in the event that we
14 need it.
15 CHAIR CHIANG: Thank you very much.
16 We have individuals signed up to comment on this
17 particular matter. The first is Melissa Anderson, followed
18 by Lenny Goldberg.
19 MS. ANDERSON: Good afternoon, Chair and Board
20 members. My name is Melissa Anderson, and I'm a deputy
21 director of the California Budget Project. I'm here to
22 thank Ms. Chu for her attention to this matter and to speak
23 in favor of her motion requesting the Franchise Tax Board to
24 issue regulations to make IRS Notice 2008-83 not applicable
25 for California purposes.
22
1 Just briefly, the recent IRS notice broadening banks'
2 ability to claim bad debts, loss deductions, after mergers
3 or acquisitions, provides a massive windfall that Congress
4 did not contemplate upon enactment of the underlying statute
5 and that California certainly did not contemplate when we
6 conform with underlying federal law.
7 The IRS notice arguably represents a change in federal
8 policy that rightfully should be the purview of Congress.
9 We agree with Ms. Chu that, if the Treasury Department
10 wished to repeal a 22-year-old law enacted by Congress for
11 the explicit purpose of preventing tax-motivated mergers and
12 acquisitions by banks, it would have been appropriate and
13 lawful to include this provision in bailout legislation that
14 was considered by Congress.
15 In light of California's mounting budget deficit, we
16 urge the FTB to act immediately to stop the application of
17 this notice in California. Absent your action, California
18 stands to lose as much as 300 million in 2009 and up to
19 2 billion over the next several years depending on the level
20 of merger activity. This is revenue that the state can ill
21 afford to lose in light of the Legislative Analyst's recent
22 forecast showing budget gaps over 8 billion during the
23 remainder of the current year and in excess of 20 billion
24 per year in the foreseeable future. Thank you.
25 CHAIR CHIANG: Thank you.
23
1 MR. GOLDBERG: Lenny Goldberg, California Tax Reform
2 Association.
3 Much has been said on this. It should be understood
4 that this was very sub rosa activity which was very little
5 known. I actually -- there were very few press articles
6 until just recently in the L.A. Times and the Washington
7 Post. If you look at the ruling, it's essentially one
8 sentence. There was no regulatory process that went into
9 this.
10 And so with regard to Ms. Chu's resolution which we
11 very much appreciate, and appreciate the support of the
12 Administration as well, I would suggest that -- and you're
13 far better attorneys -- but you take note of the fact that
14 there really was no formal regulatory process. This is just
15 effectively a one-sentence, page-and-a-half ruling that says
16 we have decided to permit this. Thereafter, Wells purchased
17 Wachovia.
18 The analyses that have been done by various law firms
19 not only speak to about potentially 110- to 140 billion
20 dollars in revenue losses, but also note that this ruling is
21 so vague and undeveloped that it is thoroughly open-ended
22 with regard to future acquisitions and mergers, mergers not
23 just of bank losses that in the case at issue it was 73
24 billion dollars' worth of Wachovia losses that were taken by
25 Wells, but also what we expect to see much more of, which is
24
1 a number -- a lot of credit card losses and credit card debt
2 and other future financial activities that will generate
3 losses against which they can all take -- take all the
4 run-against loan profits of the healthy banks.
5 And, in fact, one can understand, if you look at the
6 history of Section 382, in 1986, it was designed precisely
7 to avoid the ability or the encouragement of mergers, the
8 acquisition of losses for the purpose of sheltering profits.
9 It was written precisely the opposite of what it was used
10 for.
11 This came out without much knowledge in the press, and I
12 appreciate the bipartisan support. In fact, when I was called
13 by a radio station, when I got back to them, they said they'd
14 already talked to John Coupal of the Howard Jarvis group about
15 it and he was very much of the same mind.
16 So I think there is probably no one in the state of
17 California who thinks that California taxpayers and the
18 California General Fund should bail out -- should be part of
19 bailing out the banks.
20 And so we appreciate the motion. We hope that the FTB
21 legally can do everything they can, and we look forward to
22 working with you in the Legislature as well.
23 MEMBER GENEST: Mr. Chairman?
24 CHAIR CHIANG: Yes.
25 MEMBER GENEST: I have a question or comment for
25
1 Mr. Goldberg.
2 Just to clarify, I don't think Ms. Chu's motion
3 included any codicil to chastise or change the federal
4 decision -- chastise the Treasury.
5 In my second, I wasn't in any way saying what the
6 Treasury did was right or wrong or indifferent. I don't
7 think they care what my opinion is. Maybe they care what
8 yours is. But I'm not associating myself with any
9 characterization of the Treasury's action, just to protect
10 California's funding.
11 MR. GOLDBERG: That's what I spoke to and that's what
12 I meant.
13 But it would be helpful, actually, if the states could
14 weigh into it as well with some legislation that's been
15 proposed, but I spoke to the Administration taking a
16 position that it should not apply to California.
17 Thank you.
18 CHAIR CHIANG: Thank you.
19 We have a motion and a second. Without objection,
20 motion passes.
21 The remainder of the rulemaking calendar, motion?
22 MEMBER CHU: Move approval.
23 CHAIR CHIANG: We have a motion by Chu.
24 MEMBER GENEST: Second.
25 CHAIR CHIANG: Second by Genest. Without objection,
26
1 motion passes.
2 Item b, please.
3 MS. SMITH: Thank you. Karen Smith from the Legal
4 Division.
5 I come to you today asking your permission to proceed
6 with the formal rulemaking process for an amendment to the
7 regulation under Section 25114. Last year, the statute was
8 amended and made some changes, and now we would like to
9 amend the regulation to conform to the statutory changes.
10 This would change the requirement that the audit staff
11 do a detailed audit when it perceives that there is
12 potential noncompliance, and that detailed audit would be
13 under Section 482, transfer pricing procedures. This now
14 would make that discretionary based upon cost benefit, as
15 most audit decisions are made in the department.
16 We did hold an interested parties meeting, and we have
17 incorporated and addressed concerns and comments during that
18 interested parties meeting. We now ask your permission to
19 go through the formal process.
20 CHAIR CHIANG: Thank you.
21 Questions, comments?
22 Motion?
23 MEMBER CHU: Move approval.
24 MEMBER GENEST: Second.
25 CHAIR CHIANG: Motion by Chu, second by Genest.
27
1 Without objection, motion passes.
2 Next item, please.
3 MS. BERWICK: Item 5, Taxpayer Bill of Rights hearing.
4 CHAIR CHIANG: Very good. This is the time set for
5 the Board's annual Taxpayer Bill of Rights hearing as
6 required by Section 21006 of the Revenue and Taxation Code.
7 The purpose of this hearing is to allow taxpayers and tax
8 practitioners the opportunity to present directly to the
9 Board any proposals that they may have for changes in
10 existing state income tax law and/or for improvements in FTB
11 publications or services to the public.
12 FTB staff is available to respond to questions which
13 may be raised as a result of taxpayer proposals. Present
14 are Selvi Stanislaus, our executive officer, Geoffrey Way,
15 chief counsel, Brian Putler, director, Legislative Services
16 Bureau, and Steve Sims, taxpayer rights advocate.
17 Staff will analyze the fiscal and administrative cost
18 appointments of the proposals. I will now call the names of
19 those individuals that have indicated they wish to make a
20 presentation.
21 Please come forward when your names are called to
22 present your proposals.
23 The first person we have is Vicki Mulak -- I apologize
24 if I do not pronounce your name correctly -- EA, followed by
25 David Shaw from CSEA, followed by Gina Rodriquez from
28
1 Spidell.
2 Welcome.
3 MR. SHAW: Good afternoon.
4 Ms. Mulak had to depart for her flight.
5 Good afternoon, and thank you for the opportunity to
6 address you at the 2008 Taxpayers Bill of Rights hearing. I
7 am David Shaw, EA, first vice president of the California
8 Society of Enrolled Agents. Enrolled agents are EAs who are
9 licensed by the United States Department of Treasury to
10 assist taxpayers with tax planning, preparation, and
11 representation before all administrative levels of the
12 Internal Revenue Service and the California state taxing
13 agencies.
14 Currently, the California Society of Enrolled Agents,
15 or CSEA, is comprised of 4,000 members, and those members
16 prepare in excess of 1.5 million returns here in California.
17 Therefore, it is my honor and privilege to address you
18 today.
19 I believe each of you have a statement that was
20 written by our CSEA staff before you, and therefore please
21 refer to the written statement, because I'm going to
22 highlight some of the areas of concerns by our members.
23 The issue of nonconformity has been adversely affected
24 due to the enactment of seven federal tax bills since the
25 2007 FTB Bill of Rights hearing. While the current economic
29
1 condition of California has left our state with a budget
2 crisis, I come before you today with an appeal for
3 conformity between federal and California tax law.
4 The current economic conditions felt throughout
5 California stem largely from the meltdown of real estate
6 markets. While this meltdown has been one of epic
7 proportion, California taxpayers are headed for a further
8 financial hardship due to the nonconformity between the
9 Mortgage Forgiveness Act of 2007 and SB 1055.
10 This nonconformity could leave many California
11 taxpayers with income derived from cancellation of mortgage
12 debt. This lack of conformity alone could lead not only to
13 uncollectible tax liabilities, but excessive administrative
14 expenses incurred by the Franchise Tax Board to further
15 strain their budget.
16 Thus, full conformity with the Mortgage Forgiveness
17 Act of 2007 is strongly recommended. Lack of conformity to
18 the Tax Increase and Prevention Act of 2005 and the Small
19 Business and Work Opportunity Act of 2007 has cost the state
20 of California increased tax revenue over the past three
21 years. As both the federal acts address the Kiddie Tax,
22 conformity here would actually increase the California tax
23 revenue at a time when our state budget is at crisis.
24 In Section 8 of the written statement from CSEA, you
25 will note the conformity issues concerning the
30
1 more-likely-than-not provision and preparer penalties.
2 While increased conformity as parallel oversight of tax
3 preparers is good, full conformity with the revised federal
4 preparer standards is better.
5 Since FTB is not the body that disciplines unethical
6 preparers except by the imposition of penalties, the
7 disciplinary actions of sanctions or disbarments does not
8 affect the CTEC registered preparers. While CTEC is only
9 specifically a registration body for non-licensed preparers,
10 CTEC preparers, registered preparers, should be impacted
11 just as licensed preparers.
12 Conformity here would further discourage the practice
13 of unethical preparers in California and thus would be in
14 the best interest of the state and the taxpayers thereof.
15 CSEA appreciates the joint efforts between the
16 Franchise Tax Board staff and the CSEA staff.
17 MS. BERWICK: Time.
18 MR. SHAW: Thank you.
19 CHAIR CHIANG: Thank you very much, David.
20 We have Gina, followed by Sharon Stone Smith.
21 MS. RODRIQUEZ: Thank you, Mr. Chair and members.
22 My name is Gina Rodriquez. I'm the Sacramento editor
23 for Spidell Publishing. If you are not aware, we teach
24 about 22,000 tax practitioners every year, providing them
25 with their education. We do that through the months of
31
1 November, December, and January.
2 I have before you seven issues this year. I obviously
3 don't have enough time to go through all seven, so I've
4 picked my top three, the first of which deals with some
5 legislation that passed this year when the Legislature
6 accelerated estimated tax payments for individuals and
7 corporations by requiring the first two payments to be 30
8 percent and the second two payments to be 20 percent of
9 required annual payments.
10 However, withholding is deemed to be paid radically
11 over the year in 25-percent increments for each quarter.
12 So, taken literally, it would seem that every taxpayer who
13 is subject to withholding, will now be subject to the
14 underpayment penalty because the estimated tax payments are
15 allocated at 25 percent per quarter rather than the newly
16 required 30/30, 20/20 split.
17 We don't think this was the intention -- penalize
18 withholding taxpayers. So we believe the FTB should address
19 this issue either administratively and/or legislatively for
20 the 2009 tax season.
21 The second issue is on Page 3, Issue Number 3. This
22 was a great suggestion. It came from a Bay Area
23 practitioner. The practitioners want to be able to allow
24 the refunds from claim for refunds to be applied to
25 estimated tax payments for the next year. We can do this
32
1 for federal purposes. You can actually apply your refund
2 from an amended return to your next year's estimated tax
3 payments.
4 And allowing taxpayers to apply refunds to estimated
5 tax payments not only serves the government well, but it
6 also serves its taxpayers. Under current law, the FTB does
7 not have to pay interest on any refund amount designated as
8 an estimated tax payment, and the government also gets use
9 of this money for a period of time free of interest. And on
10 the other side, taxpayers don't have the hassle of paying
11 one or more estimated tax payments if they are able to use
12 their claim-for-refund money to apply to the estimated tax
13 requirements.
14 So our recommendation is to implement the procedures
15 used by the IRS to allow taxpayers to use their
16 claim-for-refund money.
17 The third issue I have is on Page 4, and it's Issue
18 Number 4, Other State Tax Items and Texas Franchise Tax.
19 We've had countless practitioners ask for guidance on this
20 issue, and what it is is the Texas statute changed and they
21 revised the franchise tax, throwing us into a loop and to
22 try to figure out whether we still qualify for the other
23 state tax credit.
24 And we had guidance up through 2006, and when the
25 Texas law changed, we no longer had guidance. The taxpayers
33
1 had to file their 2007 returns without guidance, and it
2 looks like, if the FTB doesn't come out with something soon,
3 we will be preparing our 2008 returns without any guidance.
4 So our recommendation is for the FTB just to release a
5 notice or something to give us some guidance on whether they
6 qualify for the other state tax credit.
7 I have many other issues there, and I'm happy to work
8 with Board staff. And would like to thank personally
9 Steve Sims, who is great working with all the practitioner
10 issues, and look forward to working with him this year.
11 MEMBER GENEST: Thank you, Ms. Rodriquez, for your
12 comments.
13 One question -- I don't know if it's to you or staff,
14 maybe both, because frankly I'm just mystified by this
15 issue.
16 Number one, I don't understand how what you are saying
17 works. Maybe you could explain in a little more detail.
18 MS. RODRIQUEZ: Sure. Under current law for estimated
19 tax payments to be allocated throughout the year, we
20 allocate them at 25 percent per quarter.
21 MEMBER GENEST: Right. Under prior law.
22 MS. RODRIQUEZ: Under prior law -- no, under current
23 law. That's how we're allocated for purposes of the
24 penalties. Now, the new legislation didn't go in and touch
25 the penalty. It went in and said, "We want these new
34
1 accelerated payments to come in."
2 MEMBER GENEST: Oh, I see. It's the penalty is
3 different than the schedule?
4 MS. RODRIQUEZ: Correct.
5 MEMBER GENEST: The schedule for the penalty is
6 different than the schedule.
7 MS. RODRIQUEZ: Correct.
8 MEMBER GENEST: Is there a fiscal consequence to
9 something that -- I don't think -- unless I'm mistaken, I
10 don't think that was the intention.
11 MR. WAY: We're working on several fronts to try to
12 remedy this. It was a fiscal literally kind of drafting
13 oversight. There is a new way of different coding
14 divisions, and we're working to provide the fix either
15 legislatively or administratively. We are in the process of
16 doing that now. Because it wasn't intended to apply to wage
17 earners. Obviously, it was intended to apply to estimated
18 payment taxpayers. And so we are working on a fix.
19 MEMBER GENEST: Good. To the extent that I understood
20 it at the time it was legislated into law, it was my
21 understanding that it was intended to work that way,
22 hopefully.
23 MR. WAY: It's not intended to impose a penalty under
24 normal wage withholding taxpayers.
25 MEMBER GENEST: Thank you.
35
1 MS. RODRIQUEZ: Thank you.
2 CHAIR CHIANG: Thanks, Gina.
3 Sharon Stone Smith.
4 MS. SMITH: We've actually had one representative
5 speak. Thank you.
6 CHAIR CHIANG: Thank you.
7 Lenny.
8 MR. GOLDBERG: Thank you.
9 Lenny Goldberg, California Tax Reform Association.
10 I was originally going to address the bank issue in
11 this discussion, but we've already done that thoroughly.
12 And so I'll just add a couple of comments, maybe add to some
13 of Spidell's comments in fact.
14 First of all, we have been up here many years on the
15 issue of direct online filing and electronic filing. I
16 think the Franchise Tax Board has done a tremendous job with
17 regard to "My FTB Account" in the area of the transparent
18 relationship between the Tax Board and the taxpayer online.
19 I raise this because it is still vastly
20 under-utilized, and it's vastly under-utilized because the
21 IRS does not have a similar process, and people start with
22 the IRS and go to the state.
23 During the campaign of President-Elect Obama, this
24 issue was actually part of the tax policy of the incoming
25 administration, to have direct online filing, to have a
36
1 process somewhat like, as it was described in campaign
2 materials, somewhat like what the Franchise Tax Board has
3 already done. And so part of my only thing to say on this
4 issue this time -- because, for the utilization in
5 California, we really need the feds to get on board -- is to
6 encourage a working relationship between the California
7 Franchise Tax Board and the Internal Revenue Service through
8 the Franchise Tax Board members and the IRS to bring forward
9 the successes we have had in California to the Department of
10 the Treasury.
11 They have a lot of other things on their hands right
12 now, but as they are going through an IRS modernization
13 process, I think it is very important that they benefit from
14 the many years of experience in implementing direct online
15 filing that we have had.
16 So I really urge both the staff and the Board members
17 to work with the Department of the Treasury and the IRS in
18 order to put forward what we have done in California. That
19 will, in turn rebound back to us, because there will be far
20 more extensive utilization of a much more taxpayer friendly
21 process if the IRS is doing it as well. So I think we all
22 have a very strong interest in helping a new administration
23 move forward with that.
24 So I will use the rest of my time to comment on two of
25 Spidell's proposals: one to allow the carryforward of
37
1 refunds into next year's estimateds, but even more than they
2 put it, for those very small -- I've gotten checks from the
3 FTB for $6.29, and I would suggest that, particularly on
4 that carryforward, that anything under $20, which is a
5 proposal of Spidell, be allowed to be carried -- to be
6 automatically placed towards next year's taxes, because it
7 doesn't make sense administratively and costwise for you all
8 to send me checks and me to deposit it and then to pay out
9 again.
10 So I do think that, not just the carrying forward of
11 refunds as a general policy, but specifically for very small
12 amounts -- I think they've been as small as a dollar and a
13 quarter that I have received -- for very small amounts, that
14 those automatically be applied. I think it's efficiency and
15 probably a benefit to the taxpayer as well. Thank you.
16 CHAIR CHIANG: Okay. Roland Boucher.
17 MR. BOUCHER: So, members of the Board and staff at
18 the Franchise Tax Board, and fellow taxpayers that may be in
19 the audience, I want to have your help on this.
20 The Franchise Tax Board, and working with the
21 Legislature, I and others have, over the last ten years,
22 helped create the 542 EZ, which I think is probably the
23 finest short form in this country, and the fact that it is
24 also a downloadable PDF form, essentially a free tax program
25 where you don't have to look things up, you don't even have
38
1 to add and substract -- it does it for you.
2 So, in the last few years -- I'm retired now -- in the
3 last few years when I file my federal return, which I
4 normally do first, I take the standard deduction. And I
5 would love to use our new tax form. But every time I try to
6 use it, my wife won't let me. And my wife won't let me
7 because there is over $5,000, $6,000 difference in the
8 standard deduction for the federal and the state. So
9 California is way behind. So my wife won't let me throw
10 away $5,000's worth of deductions so I can use this new
11 form, which I'd love to do.
12 So I just want you to get the deduction up to match
13 the feds. And you can do it in a revenue neutral fashion.
14 You can do it responsively. I've come up with some ideas on
15 how to do it. I'm sure, having worked with the Franchise
16 Tax Board in the past, that they have computers that, if
17 they wouldn't mind, they wouldn't have any trouble at all to
18 do a very good job on this.
19 So all I'm asking for is what we need is a short form
20 without losing $5,000's worth of deductions. I'm a senior
21 citizen. I'm chairman of the United Californians for Tax
22 Reform, but I'm also a former senior senator of California's
23 Senior Legislature. The seniors will love you if you do
24 this, because we don't like fishing around for little pieces
25 of paper that prove what our deductions are when we have
39
1 already filed a federal return without any of it.
2 So it is not a simple thing to determine what your
3 deductions might be if you don't have to do it for the feds.
4 You don't bother keeping it, and then you get to the end of
5 the year and, uh-oh, what am I going to do with California.
6 So, please, I know staff is perfectly capable of doing
7 a really good job on this, and all it takes is a little push
8 with the California Legislature as well. But this is
9 something that can be done revenue neutral, without changing
10 the progressivity, and make life a lot simpler for a lot of
11 taxpayers. Thank you.
12 CHAIR CHIANG: Thank you, Roland.
13 Do you want to make a comment?
14 MR. SIMS: Well, I guess. Why not. I should talk
15 since I'm sitting here.
16 I first of all want to thank the CSEA for coming
17 forward once against this year and speaking on the issues of
18 lack of conformity.
19 I just kind of wanted to note that, for the first time
20 this year, in the annual report to the Legislature, I'm kind
21 of addressing the issue of lack of conformity and the impact
22 that it has on both taxpayers and the department.
23 So although the Franchise Tax Board is not in the
24 position of sponsoring any type of legislation or really
25 even taking a position on it, I figure, in my capacity as
40
1 the taxpayer rights advocate, I can speak up on this issue.
2 And with the support of the tax practitioner community,
3 hopefully, you know, the Legislature will, I guess, put a
4 little more -- how do I say this without getting into
5 trouble -- thought into the impact that some of this, when
6 we put forward a conformity bill and it doesn't pass, what
7 actually is happening.
8 And with regard to Mr. Boucher, I'd like to thank him
9 for his efforts, because he actually defined that suggestion
10 based on -- he submitted that idea last year, and went back
11 to the drawing board and brought it back. And, again, it's
12 something that we need to take into consideration and take a
13 look at.
14 CHAIR CHIANG: Thank you.
15 Michelle Ferreira, please.
16 MS. FERREIRA: Good afternoon, Chair and Board
17 members. My name is Michelle Ferreira, and I'm a
18 practitioner in private practice from the law firm of Holme
19 Roberts & Owen. I'm also the chair-elect of the taxation
20 section of the California State Bar, and I want to thank you
21 for your time today.
22 I have prepared a written proposal that I provided to
23 Mr. Sims just this week to discuss some of the policy
24 concerns that we in private practice who represent taxpayers
25 before the Franchise Tax Board encounter with respect to
41
1 penalties that are unique to California that aren't mirrored
2 on the federal side.
3 I outlined three penalties in my proposal: the
4 noneconomic substance penalty pursuant to California Revenue
5 and Taxation Code Section 19774, and the post-amnesty
6 penalty, which is pursuant to California Revenue and
7 Taxation Code 1977.5, and the interest-based-only penalty
8 pursuant to California Revenue and Taxation Code 1977.
9 And I guess my policy appeal to the Board and the
10 Chair today is to consider if there can be some measures put
11 in place to allow California taxpayers to have some
12 administrative or perhaps judicial rights to maybe appeal
13 some of these penalties.
14 We are finding in private practice, particularly with
15 respect to the noneconomic substance penalty, which is a
16 40-percent penalty that's imposed on any other state without
17 tax. Where the California Franchise Tax Board believes that
18 the transaction lacked economic substance, it has no
19 California business purpose, it will be imposed, and there
20 are no prepayment appeal rights to the California Franchise
21 Tax Board. In other words, the taxpayer must appeal to the
22 chief of the Franchise Tax Board to have this penalty
23 abated, and, in the statute, there is no judicial review if
24 it is denied.
25 It's my understanding, and I obviously am only just
42
1 recently encountering this penalty on a more regular basis,
2 that none of these penalties have been abated. We are
3 seeing an increase of assertion of the economic substance
4 doctrine in cases where they are not traditionally in the
5 tax-shelter realm, and we are seeing an increase in
6 arguments where the Franchise Tax Board is arguing that a
7 transaction lacks a California business purpose.
8 Now, for example, I have seen it in an instance where
9 there was some estate tax planning. Obviously, California
10 has no estate tax, so there would be no California business
11 purpose in that transaction. But on the federal side, there
12 is federal estate tax. So there is a disparity in that
13 penalty.
14 So I guess I'm just appealing, from a policy
15 standpoint, to have some sort of a look-at to see whether
16 this penalty is being asserted. It's a very severe penalty,
17 and it has some difficulty in appealing it on the taxpayers'
18 side.
19 Just to move on, the post-amnesty penalty is a very
20 onerous penalty as well. It applies on 50 percent of the
21 unpaid interest on any tax assessment. It applies to all
22 California taxpayers after they file a return when there is
23 a deficiency. And it may not be contested except when there
24 is a computational error.
25 My concern with this penalty is that the Franchise Tax
43
1 Board has no just discretion to abate it except when there
2 is a computational error. And in light of the recent case
3 that came out at the State Board of Equalization, it appears
4 that the Board doesn't have any jurisdiction to review
5 whether this penalty is warranted.
6 Many taxpayers rely upon tax practitioners to prepare
7 their returns. They are unaware about whether there are
8 issues lurking in their returns, and to find out that there
9 is a deficiency afterwards, then they don't have any appeal
10 to abate this penalty.
11 I thank you for your time. My proposal is outlined.
12 I'm just asking from a policy standpoint whether there could
13 be sort of a look at these penalties and more of an
14 administrative and judicial review for California's
15 taxpayers. Thank you.
16 CHAIR CHIANG: Thank you.
17 John Woodford.
18 MR. WOODFORD: Good afternoon. My name is
19 John Woodford. I am a CPA. I'm also chair of the state
20 subcommittee of the California Society of CPAs Committee on
21 Taxation. I'm here to address one particular issue, and
22 that has to do with our recent legislation, SB 28, and the
23 changes to Revenue and Taxation Code 19136-3, which
24 basically affect tax year beginning 1/1/09, limits the prior
25 year's -- using the prior year's exception for avoiding
44
1 underpayment of estimated tax penalties for taxpayers with
2 AGI in excess of one million dollars -- which is a nice
3 problem to have.
4 But, anyway, our concern is that, if you look at the
5 statute, the AGI limitation is computed based on the income
6 earned in the year in which the penalty would apply or the
7 exception would apply, and our concern is that there are
8 things that taxpayers aren't aware of going through the year
9 that come to light at the end of the year or after the year,
10 for instance, income from passthrough entities in a certain
11 part of the world which could put their income in excess of
12 one million dollars, and then, going under the assumption
13 that they were falling within that exception, then all of a
14 sudden, at the end of the year, they're not subject to that
15 exception and are subject to penalties.
16 What we'd like to see is some kind of legislation that
17 would use the AGI from the previous year to create the
18 phase-out of the exemption. So that's what we'd like to
19 see. Thank you very much.
20 CHAIR CHIANG: Thank you.
21 Other comments?
22 MR. SIMS: I guess first on Michelle expressing
23 concern on the penalties, one of the things that has
24 happened over the years -- this is an issue that came up
25 when I was presenting to the California Bar down in Southern
45
1 California -- and we did come back, and I talked with
2 Geoff Way, chief counsel, and one of the projects that my
3 staff has undertaken for this year, this upcoming year, is
4 to take a look at all of the penalties that are issued by
5 the department in terms of, you know, how often they're used
6 and to what extent they're compared to the federal.
7 So we are kind of aware of this being an issue, and
8 it's something that this advocate's office is kind of taking
9 a look at. Again, most of those penalties are put there by
10 the Legislature, so there is nothing much we can do except,
11 you know, use them or not use them till we come to see how
12 often we do.
13 CHAIR CHIANG: Any other questions or comments?
14 MEMBER GENEST: I do have a question, I guess, for
15 you, Mr. Chair. I'm not sure.
16 It's always been somewhat unclear to me what we do
17 after hearing the Taxpayer Bill of Rights session. In some
18 instances, we have specifically said we are going to look
19 into something.
20 But do we have a process for listing each of the
21 requests or suggestions and then coming to some conclusion
22 about them and reporting them back? I'm not aware of that.
23 CHAIR CHIANG: Steve, will you address that.
24 MR. SIMS: The way the process has worked in the past
25 is, as each person gives testimony as to the various issues,
46
1 as well as issues that were brought up earlier, there is a
2 posting to the website of the results of -- actually what is
3 happening with regards to those issues.
4 Letters are sent to the individuals that raised those
5 specific issues, pretty much addressing the issues that they
6 brought up, plus the department responds as to their
7 concerns; of course, to the extent that we can give a
8 response.
9 MEMBER GENEST: Well, I asked this time, I guess,
10 because there are several -- I don't want to name the
11 specific ones -- but there are several that have a great
12 deal of substance and validity, but I don't feel capable of
13 sitting up here and saying, yes, no, yes, no to something.
14 So as long as there is some sort of serious
15 consideration and analysis and reports back to the Board so
16 that we can then, with the benefit of that, decide whether
17 we want to do something. Is that going to happen?
18 MR. SIMS: Sure. Would you like a written memorandum
19 from staff or an oral report?
20 MEMBER GENEST: Well, I think some sort of feedback,
21 whether it's written or verbal. Usually, if it's verbal,
22 it's nice to get it in advance in writing, but I'll leave
23 that to the staff. Just so we don't let it hang. I know
24 I'll personally forget it if I don't get it put into some
25 process.
47
1 MR. SIMS: Sure, we can do that.
2 CHAIR CHIANG: We'll await your written responses to
3 the comments that were made today. And then, as you deem
4 appropriate, schedule verbal reports, and then certainly the
5 members can add on upon review of the minutes.
6 MR. SIMS: Thank you.
7 I did want to add one thing to Mr. Woodford's comment
8 regarding the one million dollars. One of the things that
9 the department is doing to be proactive is we are sending
10 letters out to taxpayers that earned approximately 750,000
11 the prior year, to make them aware of this particular
12 requirement. So it's trying to be proactive to make sure
13 that they're aware and won't fall into a penalty situation.
14 CHAIR CHIANG: Thank you.
15 Next item.
16 MS. BERWICK: Item 6, executive officer's time.
17 MS. STANISLAUS: Nothing to report.
18 CHAIR CHIANG: Item Number 7.
19 MS. BERWICK: Board members' time.
20 CHAIR CHIANG: Very good.
21 I have the great pleasure to recognize and thank
22 Jim Yates.
23 Jim. Hurry up, Jim.
24 Jim Yates started his career at the Franchise Tax
25 Board as an auditor in 1975. From auditor, Jim soon
48
1 progressed to manager. Over the years, he managed various
2 audit areas, including field audit, political reform audit,
3 and residency determination and withholding audit.
4 In 1991, Jim was appointed to his current position,
5 director of the Investigations Bureau. This is where he
6 truly has made his mark during his 17 years as the bureau
7 director. Jim has established the FTB Investigations Bureau
8 as a leader among the states for his innovation and
9 professionalism.
10 As a direct result of Jim's efforts, FTB special
11 agents were granted full peace officer status in April of
12 1998. This is the first time that the Peace Officer
13 Standards and Training Commission voted unanimously to grant
14 peace officer status to special agents.
15 Jim played a crucial role in the peace officer status
16 transition, determining the department's police-related
17 policies, procedures, and appropriate equipment.
18 Under Jim's leadership, the Investigations Bureau has
19 expanded and flourished. The Bureau has included a forensic
20 audit program, a state-of-the-art computer forensic lab
21 where evidence can be reconstructed.
22 With his extraordinary vision, experience, leadership,
23 and determination, Jim Yates has made a significant and
24 lasting contribution to the Franchise Tax Board and to the
25 state of California.
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1 Let me point out, Jim, on a personal level, I just
2 know how personally and actively you are engaged. I saw you
3 throughout the state, you know, put your many professional
4 talents to fully representing the best interests of the
5 Franchise Tax Board and the taxpayers and residents of
6 California. I think it's that personal connection with
7 people that has made you so very effective.
8 So I am personally grateful, and let me communicate
9 the thanks of the people that I represent.
10 Would any of the other members like to make comments?
11 MEMBER CHU: I have to thank you for 35 years of
12 service to the FTB. The FTB was lucky to have your
13 dedication and your expertise for all these years. And I
14 think it's wonderful that you have left a legacy that will
15 last long after you're gone from the FTB, and that is the
16 peace officer status as well as all the other things that I
17 know you've done to improve the level of security here in
18 this organization.
19 CHAIR CHIANG: Jim, we have a plaque from the
20 Franchise Tax Board. I actually have to say this is the
21 prettiest state retirement plaque I've ever seen.
22 Congratulations.
23 MR. YATES: Thank you very much.
24 CHAIR CHIANG: You're welcome.
25 Okay. Any questions or comments from Board members?
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1 Then let me conclude with this.
2 Let me wish everybody a safe and happy holiday season.
3 We are now adjourned.
4 (At 2:41 p.m. the meeting was adjourned.)
5 ---oOo---
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2 REPORTER'S CERTIFICATE
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5 STATE OF CALIFORNIA )
) ss.
6 COUNTY OF SACRAMENTO )
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9 I, SANDRA VON HAENEL, certify that I was the
10 official Court Reporter for the proceedings named herein, and
11 that as such reporter, I reported in verbatim shorthand
12 writing the named proceedings;
13 That I thereafter caused my shorthand writing to
14 be reduced to typewriting, and the pages numbered 1 through
15 51, inclusive, constitute a complete, true, and correct
16 record of said proceedings:
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18 IN WITNESS WHEREOF, I have subscribed this
19 certificate at Sacramento, California, on the 18th day of
20 December, 2008.
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22 ___________________________
SANDRA VON HAENEL
23 CSR No. 11407
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